Thursday, Oct. 20, 2005 | 8:09 a.m.
When General Motors reported Monday it had reached a tentative agreement with the United Auto Workers union to cut $1 billion in annual employee health care benefits, it marked the largest single reduction the company has ever announced in one day.
But it remains unclear whether the plan will effectively stem the company's hemorrhage of red ink. After all, GM has lost $3 billion in just the first nine months of this year, the Associated Press reports.
With losses nearly every quarter, widespread production cuts, a falling U.S. market share and high gasoline prices, the Detroit automaker that has relied heavily on the production of large sport utility vehicles and trucks may need nothing short of a miracle. The company reported a $1.6 billion loss in the third quarter of this year, its largest-ever quarter loss.
The plan announced this week would mean increased health care costs for the estimated 750,000 workers, retirees and their families. Currently, retired GM workers 65 and older don't pay a deductible or contribute to their premiums, and many pay only a $10 co-payment for prescription drugs, The New York Times reports.
GM did not release specifics of the tentative agreement, pending explanations to local union representatives. And UAW members still must ratify it. GM spends about $1,500 per vehicle produced in the United States on health care -- an amount believed to be about $1,000 more per car than Toyota spends, the Times reports.
But with soaring gas prices, sales of SUVs and larger pickups -- GM's staples -- have declined. And a recent spate of recalls involving millions of vehicles and several models hasn't helped bolster consumer interest.
GM's health care cuts for retired employees, who still will have better coverage than many retired Americans, is probably among the least painful solutions to the company's myriad challenges. But cutting corners only goes so far. GM doesn't need a bean-counting miracle. It needs to design vehicles that people will buy.
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